Two trades to watch: GBP/USD, DAX

GBP/USD falls despite encouraging UK jobs data and ahead of US inflation data. DAX falls as inflation jumps, ZEW economic sentiment data due.

Charts (4)

GBP/USD falls post-UK jobs data ahead of US inflation data

UK unemployment ticked lower to 3.8% in February, down from 3.9%. The timelier claimant count continued falling in March, with 46.9k fewer people claiming unemployment benefits, following a 58k fall in February, and 10k jobs were added in the quarter. Wages, including bonuses, jumped to 5.4%, up from 4.8%.

The UK labour market continues to tighten, with unemployment falling below its pre-pandemic level and wages jumping. However, crucially, the increase in wages remains below the rise in inflation, which hit 6.2% in February.

The failure of wage increases to keep up with inflation means that household incomes remain squeezed, piling pressure on the BoE to act to tame inflation. The problem is that the BoE may not be able to hike interest rates without tipping the UK into recession.

Looking ahead, US CPI data is due. Expectations are for inflation to hit 8.3% YoY in March, 4 times the Fed’s 2% target. Hot inflation could cement expectations for a 50-basis point rate hike in May.

Where next for the GBP/USD?

GBP/USD has been trending lower, forming a series of lower highs and lower lows. The 50 SMA has crossed below the 100 SMA on the 4-hour chart in a bearish signal. The RSI also points to further losses whilst it remains out of oversold territory.

Sellers will look for a break below the key 1.30 psychological level and the 2022 low of 1.2980. A break below here could open the door to a much deeper selloff towards 1.2850, the November 2020 low.

On the flip side, it would take a move over 1.3105, the April high, for the bias to change to bullish.

gbpusd chart

DAX falls as inflation jumps, ZEW economic sentiment data due

Along with its European peers, the DAX is heading lower after steep losses on Wall Street. Concerns over rising inflation and expectations of a more hawkish Fed are hitting demand for stocks ahead of the US CPI data later.

German PPI inflation jumped to 22.6% YoY in March, up from 16.6% and above the 26.9% forecast. High PPI data suggests that consumer prices have further to rise.

German ZEW economic sentiment data shows that economic morale tumbled further in April to -48, down from -39.3 in March, amid surging prices and the continued fallout from the Russian war.

Where next for DAX?

The DAX has been trending lower since late March. It trades below its falling trendline, below the 50 & 100 SMA on the 4-hour chart.

The 50 sma also crossed below the 100 SMA in a bearish signal. The fall below the key psychological level at 14,000 and the RSI below 40 but above 30 keeps sellers optimistic about the further downside.

Support can be seen at 13890, the daily low, with a break below opening the door to a deeper selloff towards 13570, the March 15 low, and 13280, the March low.

On the flip side, buyers will look for a move over 14000 psychological levels to attack 14400 the 50 sma.

 

DAX chart

 

 

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